Susan Winer
Susan Winer
Protecting the legacy of an estate plan

Philanthropic legacy is an important aspect of an estate plan. It codifies the footprint the donor wants to leave and ensures intent will be honored.

January 24, 2013
By Susan Winer

A primary purpose of an estate plan is to ensure that financial and material assets are properly protected and managed. When developing the plan, high-net-worth individuals and their advisers often concentrate their efforts on finding ways to reduce the tax burden that will impact the estate when it is transferred to their heirs.

But what about the “softer” side of the estate—the values and legacy of giving that a client may want to pass down to the stewards of the estate? 

A 2010 Bank of America/Merrill Lynch Study noted that nearly half of wealthy households that had a will had at least one specific charitable provision, and nearly 12% more were considering establishing a charitable provision in their will in the next few years.

While-high net-worth individuals typically have some kind of testamentary vehicle created to reduce tax consequences, too often that’s where it stops. From a business development and client services perspective, focusing on the tax planning aspect of philanthropy and not the role or value of philanthropy in their client’s life is a missed opportunity for both the adviser and the client.  

Recent demographic trends highlight the importance of this issue.  Nearly $12 trillion is in the process of being transferred intergenerationally, and the transfer will accelerate over the next five years as the parents of Baby Boomers die. Boomers themselves soon will have to worry about the legacy of their own estates. By 2030, an estimated 24% of the population in the U.S. will be over 65—with more than half that number 85 and older.

Despite these trends, many families are still unprepared. According to the 2012 Insights on Wealth and Worth report from U.S. Trust, there are about 2 million households in the U.S. with investable assets exceeding $3 million. But nearly six in 10 respondents to the survey said they do not have a comprehensive estate plan.

Advisers who incorporate philanthropy into estate planning discussions with their clients stand to gain a competitive edge as demand grows among wealthy pre-Baby Boomers and Boomers for advice around legacy giving.

Helping clients to communicate their intent

So how can advisers help clients who want their charitable giving to be meaningful both now and in the future?  

First, it’s important to look at donors’ charitable giving during and after their lifetimes as a “philanthropic continuum.” This continuum constitutes a philanthropic legacy plan and speaks to the footprint donors want to leave in their defined “community” and for the generations that follow. This is why it is so important that a philanthropic legacy plan is part of every estate plan, whether as an addendum or incorporated into the plan documents.

The objective of a philanthropic legacy plan is to facilitate proper stewardship of clients’ intentions for generations to come. Among the key questions that should be considered are: 

  • What principles have guided the client’s philanthropy during life?
  • What is the client’s vision for how the philanthropic assets will be distributed?
  • Who will be charged with carrying out the legacy plan and protecting donor intent? What is the proposed time frame for implementation?
  • What causes or organizations will receive the donor’s charitable gifts after death? Who will ensure the legitimacy, capacity, and compliance of the beneficiary organizations?
  • How will the legacy plan be communicated to heirs? To what extent will they be involved in the planning process?

There are other considerations as well. Financial and legal advisers should make sure that the charities designated in a client’s estate plan are 1) aligned with the charitable mission expressed in their legacy guidelines, and 2) legitimate organizations capable of carrying out a donor’s wishes. Consider suggesting a philanthropic adviser to help protect the client’s philanthropic investments by conducting thorough due-diligence on each of the charitable beneficiaries named in an estate plan.

The philanthropic legacy plan should be an evolving document. To that end, the due-diligence process should be conducted every few years to ensure that  recipients are still aligned with the donor’s mission, are still financially viable, and still have the capacity to effectively deliver their services. 

The importance of successors

Even the most thoughtful legacy plan, however, cannot be effective without adept successors. Unfortunately, the question of who should lead a foundation or become the donor adviser of a donor-advised fund after the founding generation passes away is one far too many founding donors put off until it is too late. Generic successor provisions may satisfy IRS requirements and state laws, but they may not serve the foundation well in the future.

It is in the best interests of clients and their successors if successor trustees are properly prepared—not just named. It doesn’t matter whether they are commercial entities such as banks or your client’s children, colleagues, or extended family members. They need to know what is expected of them, the parameters or guidelines for giving, and why this is important.

Succession plans can serve as indispensable resources for founding generations trying to foster appropriate stewardship of their foundations among their children, grandchildren, and nonfamily trustees. By initiating this conversation with clients, advisers are helping to bridge generations and protect their clients. One key goal of every trusted adviser is to continue to be perceived as a valuable resource by his or her client. As the demand for incorporating philanthropy into a client’s estate plans increases, advisers who go above and beyond to meet their clients’ philanthropic needs will seize a competitive edge.

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Susan Winer is senior vice president and a founder of Strategic Philanthropy Ltd., a global philanthropic advisory practice based in Chicago. The firm works with individuals, families, and closely held and family-owned businesses, helping them to plan, assess, and manage their charitable giving.

* The AICPA PFP Section provides information, tools, advocacy, and guidance to CPAs who specialize in providing tax, retirement, estate, risk management, and investment advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. CPAs who want to demonstrate their expertise in this subject matter can apply to become a PFS credential holder.